AMD 2008 Annual Report Download - page 109

Cash Equivalents. Cash equivalents consist of financial instruments that are readily convertible into cash
and have original maturities of three months or less at the time of purchase.
Marketable Securities. The Company generally classifies its marketable debt and equity securities at the
date of acquisition as either held to maturity, available-for-sale or trading securities. Substantially all of the
Company’s investments in marketable debt and equity securities are classified as available-for-sale or trading
securities. Available-for-sale securities are reported at fair value with the related unrealized gains and losses
included, net of tax, in accumulated other comprehensive income (loss), a component of stockholders’ equity.
Realized gains and losses and declines in the value of securities determined to be other than temporary are
included in other income (expense), net. The cost of securities sold is based on the specific identification method.
Changes in estimated fair value of trading securities are recorded in earnings.
The Company classifies investments in marketable debt securities with remaining time to maturity of more
than three months as marketable securities on its consolidated balance sheet. Marketable securities generally
consist of auction rate securities (ARS) and debt securities such as commercial paper, corporate notes,
separately-held corporate stocks, certificates of deposit and marketable direct obligations of United States
governmental agencies. Available-for-sale debt securities with remaining time to maturity greater than twelve
months are classified as current when they represent investments of cash that are intended for use in current
operations within the next twelve months.
In October 2008, UBS AG (UBS) offered to repurchase all of the Company’s ARS that were purchased
from UBS prior to February 13, 2008. The Company accepted this offer. As of December 27, 2008, the Company
owned $82 million par value of these securities. From June 30, 2010 and ending July 2, 2012, the Company has
the right, but not the obligation, to sell, at par, these ARS to UBS. The Company’s put option is a freestanding
financial instrument between UBS and the Company because it is non-transferable and cannot be attached to the
ARS if they were to be sold to a third party. Furthermore, the put option’s terms do not provide for net
settlement, and the market for the underlying ARS that the Company purchased from UBS is currently illiquid.
Therefore, the Company’s put option is not readily convertible into cash and does not qualify as a derivative
under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. In accounting for
the put option, the Company made the fair value accounting election as permitted by FASB Statement No. 159,
The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159). Accordingly, the Company
initially recorded the put option at its estimated fair value in other assets on its consolidated balance sheet, with
the corresponding gain recorded in the earnings. Going forward, the put option will be marked to market each
quarter, with changes in its estimated fair value recorded in earnings.
In addition, as of December 28, 2008, the Company has reclassified the ARS that the Company purchased
from UBS from the “available-for-sale” category to the “trading securities” category. Changes to the estimated
fair value of these ARS are recorded in earnings.
Derivative Financial Instruments. The Company is primarily subject to foreign currency risks for
transactions denominated in euros and Canadian dollars. Therefore, in the normal course of business, the
Company’s financial position is routinely subjected to market risk associated with foreign currency rate
fluctuations. The Company’s general practice is to ensure that material business exposure to foreign exchange
risks are identified, measured and minimized using the most effective and efficient methods to eliminate or
reduce such exposures. To protect against the fluctuation in value of forecasted euro and Canadian dollar
denominated cash flows resulting from these transactions, the Company has instituted a foreign currency cash
flow hedging program. Under this program, the Company purchases foreign currency forward contracts,
generally expiring within twelve months, to hedge portions of its forecasted foreign currency denominated cash
flows. These foreign currency contracts are carried on the Company’s consolidated balance sheet at fair value,
and are reflected in prepaid expenses and other current assets or accrued liabilities, with the effective portion of
the contracts’ gain or loss initially recorded in accumulated other comprehensive income and subsequently
recognized in the consolidated statements of operations line item corresponding to the hedged forecasted
transaction in the same period the transaction affects operations. Generally, the gain or loss on derivative
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